Many Australians have invested in property to help fund their retirement. Indeed, around eight per cent of the population has an investment property, with 27 per cent of those owning two properties or more *. And interestingly, two out of every three investors were negatively geared and reported a loss on their rental income.
Property can be a very good investment if you put time into researching the best way to approach it (this is especially important if you plan on purchasing multiple properties). Most of us are aware that property investment can be a bit unpredictable, however we also know that it is traditionally seen as more stable than investing in stocks, hence why many choose to go in that direction.
There are many things to consider before you make that first step into creating an investment property portfolio; here are just a few of them to get you thinking and moving in the right direction.
It is a good idea to first have a think about what you would like to get out of your investment; do you want to fund your retirement, get renters to pay off your mortgage while you rent elsewhere or buy, or do you want to renovate the property and sell?
This purpose will define your long term investment strategy. It is important to note that there is not one way to approach this; what might be a good investment for you might not be the right investment for others, and vice versa.
Some other questions you could ask yourself that could give you an idea of what your investment strategy could be include:
- How long will you hang onto the property for before selling?
- Do you plan to renovate any of your investment properties? How will you finance this?
- What area do you wish to invest in? Does the property in this area seem like it will increase in value?
- Do you want the cash flow to fund your retirement, or are you looking to increase your portfolio and aren’t too worried about a strong cash flow just yet?
- If you wish to buy multiple properties, what is your focus (e.g. doing up run-down properties and selling, buying land and building a new dwelling, buying reasonable properties and making money from rent)?
Ideally, making a good investment means you would be getting cash flow from rent and from tax refunds.
Finding and buying your next property
Depending on what you want out of the property, you will have individual needs and wants when it comes to actually picking a property. However, something those who wish to invest in multiple properties might want to consider is choosing a dwelling that will bring in cash flow, rather than costing you money – i.e. create a positive cashflow.
Once you have bought an investment property, you need to continue to manage it by monitoring the money coming in and out of the property and watching the condition of it and possibly thinking about ways it could be improved.
There’s a lot to be said about investing a little extra money into properties that could have their value increased by some renovation work; kitchens, bathrooms, landscaping and things such as a coat of paint that increase the property’s street value are the most likely to increase the overall value.
These improvements, as well as natural property market growth, will in the vast majority of cases see your property value increase. In turn, your equity will increase, which in conjunction with your improved cash-flow from your investment portfolio will enhance your borrowing capacity.
In order to determine your borrowing capacity, use a mortgage calculator or talk to a lender or mortgage broker. And if you’re wanting to negatively gear your property, speak with your accountant or financial adviser.
Other costs to take into consideration:
- stamp duty
- legal costs
- loan costs
- ongoing fees associated with the property including council, strata, body corporate and property management fees
Will Keall, iMortgage’s general manager, has a wealth of marketing and business development experience gained in Australia and the United Kingdom. These include high level roles in a range of sectors such as financial services, insurance, travel and tourism, motoring and professional services.
Will played a pivotal role in the successful establishment of iMortgage. His dedication and passion for the mortgage industry have won Will the utmost respect as an integral part of the iMortgage brand.
A self confessed “numbers and brand geek”, Will calls himself a conservative investor with a long-term philosophy. He also believes it’s important to “love where you live.”
Will is a cricket and football tragic, who also enjoys running.